Income Risk and Stock Market Entry/Exit Decisions

69 Pages Posted: 3 Nov 2020 Last revised: 14 May 2021

See all articles by Yosef Bonaparte

Yosef Bonaparte

University of Colorado at Denver - Department of Finance

George M. Korniotis

University of Miami; Miami Business School; University of Miami - Behavioral Decision Making Cluster

Alok Kumar

University of Miami - Miami Herbert Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 2020

Abstract

This study examines the stock market entry and exit decisions of U.S. households. We find that a significant portion of households enters or exits from their non-retirement investment accounts biennially. Empirical evidence indicate that income risk affects equity ownership turnover. A portfolio choice model with an income process extracted from survey data shows that idiosyncratic income shocks are more important for dynamic equity ownership decisions than aggregate stock market risk. The model yields realistic estimates for the coefficient of relative risk aversion (= 3.09) and the discount factor (= 0.97).

JEL Classification: D14, G11, G12

Suggested Citation

Bonaparte, Yosef and Korniotis, George M. and Kumar, Alok, Income Risk and Stock Market Entry/Exit Decisions (October 2020). CEPR Discussion Paper No. DP15370, Available at SSRN: https://ssrn.com/abstract=3723559

Yosef Bonaparte (Contact Author)

University of Colorado at Denver - Department of Finance ( email )

United States

George M. Korniotis

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-5728 (Phone)

Miami Business School ( email )

University of Miami - Behavioral Decision Making Cluster ( email )

5250 University Drive
Coral Gables, FL 33124
United States

Alok Kumar

University of Miami - Miami Herbert Business School ( email )

512B Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

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